What is a Contract for Difference (CFD)?

The term 'CFD' stands for Contract for Difference. It is effectively a “contract” between a buyer and seller (i.e. the trader and the broker), agreeing to pay the “difference” between the value of an asset at the time the trade was entered into and the value when the trade ends.

CFDs are most commonly used as a way of trading assets like share CFDs, gold, oil, or other commodities without having to physically purchase that asset.

Instead, you simply trade on that asset’s real-time price movements. For example, if you were trading gold as a CFD you would not be buying any real bars of gold. Instead, you would just be trading on the price movements of the gold market. And because you are only trading on the price movements, CFD trading allows you to profit on upward or downward price movements, depending on which way you speculate.

This is different from investing in physical gold where you would only make a profit by selling the gold for more than you bought it for.